First, Kevin Williamson of National Review writes in his Exchequer blog about the move by the world's biggest bond fund, PIMCO, to dump U.S. federal debt:
As things stand, interest on the debt (at about 6 percent of all federal spending) is equal to about one-third of all discretionary spending combined (about 19 percent of the budget). Current forecasts have debt-service costs alone amounting to nearly $1 trillion by 2020, consuming 20 percent of all federal tax revenues. That’s a vicious circle: Bigger deficits add to the total debt, which drives up the cost of debt service, which creates bigger deficits, shampoo, rinse, repeat, and wake up in Argentina circa 1999–2002.And Veronique de Rugy, also from National Review:
Which gets us back, as usual, toward the one inevitable, undeniable fact of American life at this moment: The major entitlement programs — Social Security, Medicare, Medicaid — other “mandatory” spending, national defense, and interest on the debt make up more than 80 percent of federal spending. Everything else put together accounts for less than $1 in $5 of government outlays. Assuming we don’t default on our national debt, interest on the debt is the one spending item that is truly off the table. Even if we cut national-defense spending to zero, that would only get us just over halfway toward eliminating the trillion-dollar deficit headed our way in 2012. (We aren’t cutting national-defense spending to zero.) Meaning that major reform of the entitlement programs is not optional. It is do or die.
The bottom line: We can argue endlessly over when the pension plans will run out of cash, or what the value of their unfunded liabilities is. We can even debate the true meaning of being broke. But there is one issue where there is no room for debate: Once the pension plans run out of money, the payments will have to come out of general funds, meaning taxpayers’ pockets. That will happen very soon: The number of retirees is going up, the promises made have gotten more and more generous over time, and pension plans aren’t underfunded just because of the recession. States are already broke, so if they want to avert a pension crisis, they need to push through reforms as soon as possible.